Switzerland: French Tax Authorities Do Not Benefit From HSBC Customer Data Stolen In Geneva

In 2014, France applied for assistance in tax administrative matters vis à vis the Swiss Federal Tax Authorities in Berne and requested information on a married couple whose name the French authorities had found in the documents stolen by Mr. Hervé Falciani, a computer scientist at HSBC in Geneva, who copied extensive client data between 2006 and 2008 and sent them to foreign tax authorities.

France had thereupon initiated a tax investigation against the spouses and, through a request for similar legal assistance in Belgium and Uruguay, received information on at least one Swiss bank account held by the couple.

In its request for tax admininistrative assistance, France invoked the Franco-Swiss Double Taxation Agreement (DTA), which was amended in 2009 in order to bring it in line with pertaining OECD standards. The Swiss Federal Tax Authorities in Berne wanted to admit France's request and approved the bank document transfer, but was stopped by the Swiss Federal Administrative Court which argued that no tax administrative assistance should be granted based on illegally procured data. The highest court in Switzerland now confirmed this latter view in a decision published last week.

The Swiss Federal Supreme Court based its decision by referring to the Swiss Federal Tax Assistance Act of 2012, providing that Switzerland does not accomodate a request for tax administrative assistance if "it breaches the principle of good faith, in particular where it is based on information obtained by criminal acts punishable under Swiss law". The fact that Mr. Falciani retrieved the bank client data in a criminal way was undisputed, as the Italian-French double citizen had been sentenced for this to a five-year imprisonment by the Federal Criminal Court in Bellinzona.

The Swiss Federal Supreme Court held that Swiss Federal Tax Assistance Act of 2012 concretizes the principle established by the Vienna Convention on the Law of Treaties of 1969, so the fact that the Swiss DTA with France does not contain such a proviso is not harmful. Moreover, the hightest court in Switzerland reminded the French government that it had promised not to make use of the Falciani-documents when the DTA was renegotiated in 2009. It looks as if France is so far the only country with such a committment towards Switzerland.

The present interpretation by the Swiss Federal Supreme Court may mean that Switzerland does not provide any tax information in the case of inquiries from foreign tax authorities based data stolen abroad. The court left it open as to whether its "fruit of the poisonous tree"-doctrine allows for exemptions as it stated the necessity to clarify in each individual case whether a violation of good faith pursuant to the Vienna Convetion of 1969 exists. The court's vagueness will be of importance in terms of international tax assistance requests lodged by third countries (such as India) which had received the Falciani-documents from France what could be argued as a non-criminal behaviour.

With its March 17, 2017, decision, the Swiss Federal Supreme Court renders further case law when it comes to dealing with administrative assistance requests based on illegally obtained information. We reported in one of our March 2017 newsletters on a Swiss Federal Supreme Court decision rendered on March 14, 2017, where a data transfer was approved as the theft of the stolen data was committed at UBS in France. In that case, the Swiss Federal Supreme Court argued that the pertaining information was not obtained by criminal acts punishable under Swiss law.

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